Commissioner of Internal Revenue v. Wodehouse/Opinion of the Court

by Harold Hitz Burton

United States Supreme Court

337 U.S. 369

Commissioner of Internal Revenue  v.  Wodehouse

 Argued: June 13, 1949. --- Decided: Oct 10, 1949

The question before us is whether certain sums received in 1938 and 1941, by the respondent, as a nonresident alien author not engaged in trade or business within the United States and not having an office or place of business therein, were required by the Revenue Acts of the United States to be included in his gross income for federal tax purposes. Each of these sums had been paid to him in advance and respectively for an exclusive serial or book right throughout the United States in relation to a specified original story written by him and ready to be copyrighted. The answer turns upon the meaning of 'gross income from sources within the United States' as that term was used, limited and defined in §§ 212(a), 211 and 119 of the Revenue Act of 1938, and the Internal Revenue Code, as amended in 1940 and 1941. ^[1] For the reasons hereinafter stated, we hold that these sums each came within those kinds of gross income from sources within the United States that w re referred to in those Acts as 'rentals or royalties for the use of or for the privilege of using in the United States, * * * copyrights, * * * and other like property,' ^[2] and that, accordingly, each of these seems was taxable under one or the other of those Acts.

The respondent, Pelham G. Wodehouse, at the times material to this case, was a British subject residing in France. He was a nonresident alien of the United States not engaged in trade or business within the United States and not having an office or place of business therein during either the taxable year 1938 or 1941. He was a writer of serials, plays, short stories and other literary works published in the United States in the Saturday Evening Post, Cosmopolitan Magazine and other periodicals.

February 22, 1938, the Curtis Publishing Company (here called Curtis) accepted for publication in the Saturday Evening Post the respondent's unpublished novel "The Silver Cow." The story had been submitted to Curtis by the respondent's literary agent, the Reynolds Agency, and, on that date, Curtis paid the agency $40,000 under an agreement reserving to Curtis the American serial rights in the story, including in such rights those in the United States, Canada and South America. The memorandum quoted in Appendix B, infra, 337 U.S. page 398, 69 S.Ct. page 1134, constituted the agreement. Also in 1938, the respondent received $5,000 from Doubleday, Doran & Company for the book rights in this story. The story was published serially in the Saturday Evening Post, July 9 to September 3, 1939.

Pursuant to a like agreement, the respondent received $40,000 from Curtis, December 13, 1938, for serial rights in and to his story "Uncle Fred in the Springtime." It was published serially in the Saturday Evening Post, April 22 to May 27, 1939.

July 23, 1941, Hearst's International Cosmopolitan Magazine, through the respondent's same agent, paid the respondent $2,000 for "all American and Canadian serial rights (which include all American and Canadian magazine, digest, periodical and newspaper publishing rights)" to the respondent's article entitled "My Years Behind Barbed Wire." The agreement appears in Appendix C, infra, 337 U.S. page 400, 69 S.Ct. page 1134. Apparently this story was published shortly thereafter.

August 12, 1941, Curtis, trough the same agent, paid the respondent $40,000 for the "North American (including Canadian) serial rights' to respondent's novel entitled 'Money in the Bank." The agreement was in the form used by Curtis in 1938. ^[3] The evidence does not state that this story was published but it shows that Curtis, pursuant to its agreements, took out a United States copyright on each of the respective stories named in the foregoing agreements. After each story's serial publication, Curtis reassigned to the respondent, on the latter's demand, all rights in and to the story excepting those rights which the respondent expressly had agreed that Curtis was to retain. The respective sums were thus paid to the respondent, in advance and in full, for the serial or book rights which he had made available. For United States income tax purposes, the respondent's literary agent, or some other withholding agent, withheld from the respondent, or from his wife as his assignee, a part of each payment.

In 1944 the Commissi ner of Internal Revenue, petitioner herein, gave the respondent notice of tax deficiencies assessed against him for the taxable years 1923, 1924, 1938, 1940 and 1941. In these assessments, among other items, the Commissioner claimed deficiencies in the respondent's income tax payments based upon his above-described 1938 and 1941 receipts. The respondent, in a petition to the Tax Court for a redetermination of such deficiencies, not only contested the additional taxes assessed against him, which were based upon the full amounts of those receipts, but he asked also for the refund to him of the amounts which had been withheld, for income tax purposes, from each such payment. The Tax Court entered judgment against him for additional taxes for 1938, 1940 and 1941, in the respective amounts of $11,806.71, $8,080,83 and $1,854,85. In speaking of the taxes for 1940 and 1941, the Tax Court said:

"The first issue, found also in the year 1938, presents the question of the taxability of lump sum payments for serial rights to literary works. Counsel for the petitioner (Wodehouse, the respondent here) concedes that substantially the same issue was raised and decided in Sax Rohmer, 5 T.C. 183; aff(irmed 2 Cir.), 153 F.2d 61, certiorari denied 328 U.S. 862 (66 S.Ct. 1367, 90 L.Ed. 1632).

"In Sax Rohmer, supra, we held that the lump sum payments for serial rights were royalties and, as such, were taxable to the recipient. The arguments advanced in the cases at bar follow the same pattern as those appearing in the Sax Rohmer case, as presented to this Court and to the Circuit Court of Appeals. The petitioner's contentions were rejected in both courts and for the same reasons stated in the opinions therein, they are rejected here." 8 T.C. 637, 653.

As the respondent's taxes for 1938 and 1941 had been paid to the Collector of Internal Revenue at Baltimore, Maryland, his petition for review of the Tax Court's judgment for those years was filed in the United States Court of Appeals for the Fourth Circuit. The judgment against him was there reversed, 166 F.2d 986, one judge dissenting on the authority and reasoning of Rohmer v. Commissioner, 2 Cir., 153 F.2d 61. Because of the resulting conflict between the Circuits and also because comparable issues as to this respondent's taxes for 1940 were pending before the Court of Appeals for the Second Circuit, we granted certiorari. 335 U.S. 807, 69 S.Ct. 34. ^[4]

The petitioner contends that receipts of the type before us long have been recognized as rentals or royalties paid for the use of or for the privilege of using in the United States, patents, copyrights and other like property. Keeping in mind that, before 1936, such receipts were expressly subject to withholding as part of the taxable income of nonresident alien individuals, he contends that those receipts remained taxable and subject to withholding in 1938 and 1941, after the standards for taxation of such aliens had been made expressly coterminous with the standards for subjecting this part of their income to withholding procedures.

In opposition, the re pondent argues, first, that each sum he received was a payment made to him in return for his sale of a property interest in a copyright and not a payment to him of a royalty for rights granted by him under the protection of his copyright. Being the proceeds of a sale by him of such a property interest he concludes that those proceeds were not required to be included in his taxable gross income because the controlling Revenue Acts did not attempt to tax nonresident alien individuals, like himself, upon income from sales of property. Secondly, the respondent argues that, even if his receipts were to be treated as royalties, yet each was received in a single lump sum and not 'annually' or 'periodically,' and that, therefore, they did not come within his taxable gross income.

The petitioner replies that, in this case, we do not properly reach the fine questions of title, or of sales or copyright law, thus raised by the respondent as to the divisibility of a copyright or as to the sale of some interest in a copyright. The petitioner states that the issue here is one of statutory interpretation. It is confined primarily to the taxability of the respondent's receipts within the broad, rather than narrow, language of certain Revenue Acts. Attention must be focused on those Revenue Acts. If their terms made these receipts taxable because of the general nature of the transactions out of which the receipts arise, namely, payments for the use of or for the privilege of using copyrights, then it is those statutory definitions, properly read in the light of their context and of their legislative history, that must determine the taxability of the receipts. He argues that the language of the Revenue Acts does not condition the right of the United States to its revenue upon any fine point of property law but covers these receipts in any event. Treating the respondent's receipts simply as representing payments for the use of or the privilege of using copyrights the petitioner argues that they constituted income that was subject both to withholding and to taxation in 1938 and 1941. He claims finally that the respondent cannot escape taxation of such receipts merely by showing that each payment was received by him in a lump sum in advance for certain uses of a copyright, instead of in several payments to be made at intermediate dates during the life of the copyright.

Sums received by a nonresident alien individual for the use of a copyright in the United States constituted gross income taxable to him under the Revenue Act of 1938 and the Internal Revenue Code.

Under the income tax laws of the United States, sums received by a nonresident alien author not engaged in trade or business within the United States and not having an office or place of business therein long have been required to be included in his gross income for our federal tax purposes. Such receipts have been an appropriate and readily collectible subject of taxation. A review of the statutes, regulations, administrative practices and court decisions discloses this policy and, at least from a revenue standpoint, no reason has appeared for changing it.

Since the early days of our income tax levies, rentals and royalties paid for the use of or for the privilege of using in the United States, patents, copyrights and other like property have been taxed to nonresident aliens and for many years at least a part of the tax has been withheld at the source of the income. To exempt this type of income from taxation in 1938 or 1941, in the face of this long record of its taxation, would require a clearness and positiveness of legislative determination to change the established procedure that is entirely absent here.

The policy of this Court in this general field of statutory interpretation was stated in 1934 in a case which dealt with the taxation of a somewhat comparable form of income of a foreign corporation. In Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 55 S.Ct. 50, 51, 79 L.Ed. 211, the question presented was that f the proper interpretation to be given to § 217(a)(1) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 30, analogous to § 119(a)(1) of the Revenue Act of 1938, 52 Stat. 503, now before us. Certain sums had received by a foreign corporation from the United States Government in the form of interest upon a refund of an overpayment by that corporation of its income taxes. This Court held that such interest, in turn, constituted taxable gross income derived by the foreign corporation from a source within the United States, because it amounted to interest upon an interest-bearing obligation of a resident of the United States within the meaning of the Act. This interpretation was adopted in opposition to the foreign corporation's argument that the payment should be exempted because it amounted to interest on one of the "obligations of the United States" and that interest on such an obligation was expressly exempted from taxation by § 213(b)(4) of the Revenue Act of 1926, analogous to § 22(b) (4) of the Revenue Act of 1938. This Court distinguished between the meaning of the word 'obligations' in the context of the different sections of the Act and stated the applicable general principles of statutory construction as follows:

"The general object of this act is to put money into the federal treasury; and there is manifest in the reach of its many provisions an intention on the part of Congress to bring about a generous attainment of that object by imposing a tax upon pretty much every sort of income subject to the federal power. Plainly, the payment in question constitutes income derived from a source within the United States; and the natural aim of Congress would be to reach it. In Irwin v. Gavit, 268 U.S. 161, 166, 45 S.Ct. 475, 476, 69 L.Ed. 897, this court, rejecting the contention that certain payments there involved did not constitute income, said: 'If these payments properly may be called income by the common understanding of that word and the statute has failed to hit them it has missed so much of the general purpose that it expresses at the start. Congress intended to use its power to the full extent. Eisner v. Macomber, 252 U.S. 189, 203, 40 S.Ct. 189 (191), 64 L.Ed. 521, 9 A.L.R. 1570.' Although Congress intended, as the court held in the Viscose case, supra (American Viscose Corp. v. Commissioner, 3 Cir., 56 F.2d 1033), to include interest on a tax refund made to a domestic corporation, we are asked to deny such intention in respect of a competing foreign corporation. But we see nothing in the relationship of a foreign corporation to the United States, or in any other circumstance called to our attention, which fairly shows that such a discrimination was within the contemplation of Congress. On the contrary, the natural conclusion is that, if any discrimination had been intended, it would have been made in favor of, and not against, the demestic corporation, which contributes in a much more substantial degree to the support of the people and government of the United States." Id., 293 U.S. at pages 89-90, 55 S.Ct. at page 52, 79 L.Ed. 211.

"in the foregoing discussion, we have not been unmindful of the rule, frequently stated by this court, that taxing acts 'are not to be extended by implication beyond the clear import of the language used,' and that doubts are to be resolved against the government and in favor of the taxpayer. The rule is a salutary one, but it does not apply here. The intention of the lawmaker controls in the construction of taxing acts as it does in the construction of other statutes, and that intention is to be ascertained, not by taking the word or clause in question from its setting and viewing it apart, but by considering it in connection with the context, the general purposes of the statute in which it is found, the occasion and circumstances of its use, and other appropriate tests for the ascertainment of the legislative will. Compare Rein v. Lane, L.R. 2 Q.B. Cases 144, 151. The intention being thus disclosed, it is enough that the word or clause is reasonably susceptible of a meaning consonant therewith, whatever might be its meaning in another and different connection. We are not at liberty to reject the meaning so established and adopt another lying outside the intention of the Legislature, simply because the latter would release the taxpayer or bear less heavily against him. To do so would be not to resolve a doubt in his favor, but to say that the statute does not mean what it means." Id., 293 U.S. at pages 93-94, 55 S.Ct. page 54, 79 L.Ed. 211.

A. These receipts unquestionably would have been taxed to a nonresident alien individual if received by him under the Revenue Act of 1934.

The background and development of the particular provisions before us emphasize the congressional purpose to tax this type of income. They disclose the full familiarity of Congress with this general type of transaction. Throughout the history of our federal income taxes since the Sixteenth Amendment to our Constitution, the Revenue Acts have expressly subjected to taxation the income received by nonresident alien individuals from sources within the United States. For example, there is no doubt that the receipts here in question would have been taxable to the respondent if they had been received by him under the Revenue Act of 1934, c. 277, 48 Stat. 680 et seq., 26 U.S.C.A. Int.Rev.Acts, page 359 et seq., and the present issue resolves itself largely into a determination whether such receipts were relieved from taxation by the Revenue Act of 1936, c. 690, 49 Stat. 1648 et seq., 26 U.S.C.A Int.Rev.Acts, page 813 et seq., through certain changes in the income tax laws that were made by that Act and which were still in effect in 1938 and 1941.

Under the Revenue Act of 1934, the income of a nonresident alien individual was taxed at the same rates as was the income of a resident citizen (§§ 11 and 12) but his taxable gross income was limited wholly to that which he had received "from sources within the United States," § 211(a). ^[5] Such sources were described in § 119 of that Act, and the material portions of that Section have remained unchanged ever since. They give their own definition of rentals and royalties. These have been quoted from above and they are set forth in full in Appendix A, infra, 337 U.S. page 395, 69 S.Ct. page 1132. The Act of 1934 thus sought to include as taxable gross income any income which a nonresident alien individual received as royalties for the privilege of using any copyrights in the United States and also sought to tax his income from the sale of any personal property which he had produced (in whole or in part) outside the United States but had sold within the United States. § 119(a)(4) and (e)(2). As a mechanism of collection, the Act also sought to withhold from nonresident alien individuals, at the source of payment, the entire normal tax of 4% computed upon numerous classifications of their income named in § 143(b). ^[6] This language is important in this case. It expressly included certain forms of interest and also "rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, of any nonresident alien individual, * * *." (Emphasis added.) While royalties were not mentioned specifically in this statutory withholding clause, they had been expressly listed in the Regulations, since long before 1934, so that there was no doubt that they were to be subject to withholding as a matter of interpretation. It was equally clear that income derived from a sale in the United States, of either real or personal property, was not included, either expressly or by implication or interpretation, in the income subject to a withholding of the tax on it at the source of the income. The Regulations, since the Act of 1924 (U.S. Treas. Reg. 65, Art. 362 (1924)) to the present time, have contained decisive statements on these points. Such Regulations have been substantially identical wi h the following which appeared in Treasury Regulations 86, Article 143-2 (1934):

"Only fixed or determinable annual or periodical income is subject to withholding. The Act specifically includes in such income, interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, and emoluments. But other kinds of income are included, as, for instance, royalties.

"* * * The income derived from the sale in the United States of property, whether real or personal, is not fixed or determinable annual or periodical income." (Emphasis added.) Apart from these provisions requiring the withholding of taxes at the source of the income, the Revenue Acts have contained other provisions, in similar language, calling for the reporting to the Commissioner of Internal Revenue of material information as to certain income which might be taxable. This language has received an interpretation which is related to and consistent with that here given to the provisions as to withholding taxes. ^[7]

These statutes and Regulations show that, under the Act of 1934, Congress sought to tax (and withhold all or part of the tax on) the income of a nonresident alien individual insofar as it was derived from payments for the use of or for the privilege of using copyrights in the United States. It also sought to tax (although it could not generally withhold the tax on) any gain which the taxpayer derived from the sale of personal property produced by him without the United States but sold within the United States. Accordingly, if the receipts now before us had been received by the respondent under the Act of 1934, they would have been taxable whether they were treated as payments in the nature of royalties for the use of the copyrights under § 119(a) or were treated as payments of a sale's price for certain interests in copyrights under § 119(e). The Regulations helpfully carried this analysis further. They showed that, while both forms of income were taxable, yet it was only the royalty payments (and not the sales' proceeds) that were subject to the withholding procedure. A Treasury Decision made in 1933, under the Revenue Acts extending from 1921 to 1928, ^[8] and a decision of the Court of Appeals for the Second Circuit made in 1938, under the Revenue Act of 1928, c. 852, 45 Stat. 791, sustain the above conclusions. The latter case was that of Sabatini v. Commissioner, 2 Cir., 98 F.2d 753, ^[9] later discussed and approved in Rohmer v. Commissioner, 2 Cir., 153 F.2d 61, 63. Incidentally, these opinions declared not only that the taxes in question were imposed upon the receipts as royalties but that it made no difference whether such royalties were each received in lump sums in full payment in advance, to cover the use of the respective copyrights throughout their statutory lives, or whether the royalties were received from time to time and in lesser sums.

B. The Revenue Act of 1936 preserved the taxability of the several kinds of income of nonresident alien individuals which had been the subject of withholding at their respective sources, including receipts in the nature of royalties for the use of copyrights in the United States.

The Revenue Act of 1936 did not change materially the statutory definition of gross income from sources within the United States under § 119. It did, however, amend § 211(a) ^[10] materially in its description of the taxable income of nonresident alien individuals. These amendments (1) substituted a special flat rate of 10% for the general normal tax and surtax rates, (2) required this entire special tax, in the usual case, to be withheld at the source of the taxable income, (3) limited the taxability of the income of each nonresident alien individual to those kinds of income to which the withholding provisions also applied, and (4) (except for the addition of dividends) inserted verbatim, as a new statement of the types of taxable income of a nonresident alien individual (not engaged in trade or business within the United States and not having an office or place of business therein), the language that previously had been used to state the specific types of income to which the withholding procedure was to apply. See its § 143(b) ^[11] paralleling its amended § 211(a). By thus restricting the income tax to those specific types of income to which the withholding procedure had previously applied, Congress automatically relieved nonresident alien individuals from the taxation of their income from certain sales of real or personal property, previously taxed. This Amendment, on the other hand, retained and increased the tax on the very kind of income that is before us. It also increased the portion of such income to be withheld at ts source to meet the new and higher flat rate of tax.

The legislative history of the Revenue Act of 1936 confirms the special meaning thus apparent on its face. It emphasizes the policy which expressly marked the enactment of this Act, including particularly these Amendments. The practical situation was that it had been difficult for United States tax officials to ascertain the taxable income (in the nature of capital gains) which had been derived from sales of property at a profit by nonresident alien individuals, or by foreign corporations, when the respective taxpayers were not engaged in trade or business within the United States and did not have an office or place of business therein. This difficulty was in contrast to the ease of computing and collecting a tax from certain other kinds of income, including payments for the use of patents and copyrights, from which the United States income taxes were being, wholly or partially, withheld at the source. The Congressional Committee Reports expressed a purpose of Congress to limit future taxes on nonresident alien individuals to those readily collectible. ^[12] With a view evidently to securing substantially as much revenue as before, Congress thereupon applied a new flat rate of 10% to nonresident alien individuals and of 15% to foreign corporations, the entire amount of this flat rate of tax to be withheld and collected at the source of the income. The reports referred also to increases in stock transfer taxes which might result from thus removing the income tax from profits of nonresident alien individuals on their stock sales. Congress recognized a value and a convenience in thus turning to the accessible, fixed and determinable income of nonresident aliens. There is no doubt that these steps sought to increase or at least to maintain the existing volume of revenue. ^[13] No suggestion appears that Congress intended or wished to relieve from taxation the readily accessible and long-established source of revenue to be found in the payments made to nonre ident aliens for the use of patents or copyrights in the United States. Much less was any suggestion made that lump sum advance payments of rentals or royalties should be exempted from taxation while at the same time smaller repeated payments of rentals or royalties would be taxed and collected at the source of the income. To have exempted these nonresident aliens from these readily collectible taxes derived from sources within the United States would have discriminated in their favor against resident citizens of the United States who would be required to pay their regular income tax on such income, if treated as royalties within the meaning of our gross income provisions, or at least to pay a tax upon them as capital gains, if treated as income from sales of capital within the meaning of our capital gains provisions. No such purpose to discriminate can be implied.

Accordingly, at the time in 1936 when these Amendments were being enacted into § 211(a), the provisions for taxing the gross income of nonresident alien individuals under the Revenue Act of 1934 already had been long and officially interpreted as covering receipts from royalties as expressly and broadly defined in § 119(a) and subjected to withholding at the source of income under § 143(b). The legislative history of the 1936 Amendments is, therefore, a refutation of any claim that Congress, at that time, was seeking to exempt such taxpayers from those appropriate and readily collectible items. On the other hand, that history shows that Congress was seeking to continue to tax, and even to increase the tax upon, those kinds of income which had been found to be readily withholdable at their respective sources. Accordingly, what Congress did was to incorporate the very language of the withholding provisions of § 143(b) into the language of the taxing § 211(a). The Regulations under § 143(b), quoted above substantially as being in effect since 1924, had already settled that royalties were included in § 143(b). The Treasury Bulletin also showed that lump sum payments made in advance for limited rights under copyrights were included in the "royalties" thus subject to withholding and taxation. The type of transactions and the kind of payments were thus identified. The broad language there used is entitled to be interpreted in accordance with its plain meaning and established usage. Therefore, after the 1936 Amendments, it became equally clear that these receipts in the nature of royalties which were previously withheld at their source were included in the sources of income specified in § 211(a) but that profits from sales of property were not included in the sources of income specified in § 211(a) any more than they had been under § 143(a). The decisions of the Court of Appeals of the Second Circuit in Sabatini v. Commissioner, supra, in 1938, in relation to the Revenue Act of 1928 and in Rohmer v. Commissioner, supra, in 1946, in relation to the Internal Revenue Code, as amended in 1940, reflected the same point of view.

None of these provisions of the Act of 1936 were changed by the Revenue Act of 1938, the Internal Revenue Code, or the 1940 or 1941 Amendments to that Code, except in relation to the size of the tax rates. The principal changes even in those rates were to provide higher taxes in the higher brackets, rather than to reduce the taxes on nonresident aliens. ^[14]

The receipt of the respective amounts by the respondent in single lump sums as payments in full, in advance, for certain rights under the respective copyrights did not exempt those receipts from taxation.

Once it has been determined that the receipts of the respondent would have been required to be included in his gross income for federal income tax purposes if they had been received in annual payments, or from time to time, during the life of the respective copyrights, it becomes equally clear that the rece pt of those same sums by him in single lump sums as payments in full, in advance, for the same rights to be enjoyed throughout the entire life of the respective copyrights cannot, solely by reason of the consolidation of the payment into one sum, render it tax exempt. No Revenue Act can be interpreted to reach such a result in the absence of inescapably clear provisions to that effect. There are none such here.

The argument for the exemption was suggested by the presence in §§ 211(a) and 143(b) of the words "annual" and "periodical." If read apart from their text and legislative history and supplemented by the gratuitous insertion after them of the word "payments," they might support the limiting effect here argued for them. However, when taken in their context, and particularly in the light of the legislative history of those Acts, and the interpretation placed upon them by the Treasury Department and the lower courts, they have no such meaning. Those words are merely generally descriptive of the character of the gains, profits and income which arise out of such relationships as those which produce readily withholdable interest, rents, royalties and salaries, consisting wholly of income, especially in contrast to gains, profits and income in the nature of capital gains from profitable sales of real or personal property. ^[15]

In the instant case, each copyright which was to be obtained had its full, original life of 28 years to run after the advance payment was received by the author covering the use of or the privilege of using certain rights under it. Fixed and determinable income, from a tax standpoint, may be received either in annual or other payments without altering in the least the need or the reasons for taxing such income or for withholding a part of it at its source. One advance payment to cover the entire 28-year period of a copyright comes within the reason and reach of the Revenue Acts as well as, or even better than, two or more partial payments of the same sum.

Article 143-2 of Treasury Regulations 101, issued under the Revenue Act of 1938, provided:

"The income need not be paid annually if it is paid periodically; that is to say, from time to time, whether or not at regular intervals. That the length of time during which the payments are to be made may be increased or diminished in accordance with someone's will or with the happening of an event does not make the payments any the less determinable or periodical."

Substantially this liberal language in the Regulations has been used in this connection since 1918. (U.S. Treas. Reg. 45, Art. 362, (1918).) Single lump sum payments of royalties were held to be taxable under the Revenue Acts of 1921, 1924, 1926 and 1928, I.T. 2735, XII-2 Cum. Bull. 131 (1933); under the Revenue Act of 1928, Sabatini v. Commissioner, supra; and under the Internal Revenue Code, as amended in 1940, Rohmer v. Commissioner, supra.

For the foregoing reasons, we hold that the receipts in question were required to be included in the gross income of the respondent for federal income tax purposes. The judgment of the Court of Appeals accordingly is reversed and remanded for further proceedings consistent with this opinion.

Reversed and remanded.

Mr. Justice DOUGLAS took no part in the consideration or decision of this case.

APPENDIX A.

Material provisions of §§ 212(a), 211 and 119 of the Revenue Act of 1938 and the Internal Revenue Code:

'Sec. 212. Gross income

"(a) General rule.-In the case of a nonresident alien individual gross income includes only the gross income from sources within the United States." (Emphasis added.) 52 Stat. 528, and 53 Stat. 76, 26 U.S.C. § 212(a), 26 U.S.C.A. § 212(a).

"Sec. 211. Tax on nonresident alien individuals

"(a) No United States business or office.

"(1) General rule.-There shall be levied, collected, and paid for each taxable year, in lieu of the tax imposed by sections 11 and 12 (normal tax and surtax imposed generally upon individuals and applicable in the instant case, under paragraphs (a)(2) and (c), because the respondent's gross income for each taxable year exceeded the allowable maximum there specified), upon the amount received, by every nonresident alien individual not engaged in trade or business within the United States and not having an office or place of business therein, from sources within the United States as interest (except interest on deposits with persons carrying on the banking business), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, a tax of 10 per centum of such amount, * * *.

"(2) Aggregate More Than $21,600.-The tax imposed by paragraph (1) shall not apply to any individual if the aggregate amount received during the taxable year from the sources therein specified is more than $21,600.

"(c) No United States business or office and gross income of more than $21,600.-A nonresident alien individual not engaged in trade or business within the United States and not having an office or place of business therein who has a gross income for any taxable year of more than $21,600 from the sources specified in subsection (a)(1), shall be taxable without regard to the provisions of subsection (a)(1), except that-

"(1) The gross income shall include only income from the sources specified in subsection(a)(1);

"(2) The deductions (other than the so-called 'charitable deduction' provided in section 213(c)) shall be allowed only if and to the extent that they are properly allocable to the gross income from the sources specified in subsection (a)(1);

"(3) The aggregate of the normal tax and surtax under sections 11 and 12 shall, in no case, be less than 10 per centum of the gross income from the sources specified in subsection (a)(1); and * * *." (Emphasis added.) 52 Stat. 527-528.

The above provisions of §§ 212 and 211 were reenacted in the Internal Revenue Code, 53 Stat. 75-76. The tax rates were changed by the Revenue Act of 1940, c. 419, 54 Stat. 516-517 as follows: the surtaxes were increased generally in § 12(b), the flat rates were increased from 10% to 15% and the allowable maximum income subject to the flat rates was raised from $21,600 to $24,000 in § 211(a) and (c), 54 Stat. 518. The Revenue Act of 1941, c. 412, 55 Stat. 687, 688, again increased the surtaxes in § 12(b), increased the flat rates from 15% to 27 1/2% and decreased the allowable maximum income subject to the flat rates from $24,000 to $23,000 in § 211(a) and (c), 55 Stat. 694. Since then, the normal tax and surtax rates have been increased still further, the flat rate applicable to nonresident alien individuals has been increased from 27 1/2% to 30% and the allowable maximum income to which the flat rates apply has been reduced to $15,400. 26 U.S.C. § 211(a) and (c), 26 U.S.C.A. § 211(a, c).

"Sec. 119. Income from sources within United States.

"(a) Gross income from sources in United States.-The following items of gross income shall be treated as income from sources within the United States:

"(1) Interest.-* * *

"(2) Dividends.-* * *

"(3) Personal services.-* * *

"(4) Rentals and royalties-Rentals or royalties from property located in the United States or from any interest in such property, including rentals or royalties for the use of or for the privilege of using in the United States, patents, copyrights, secret processes and formulas, good will, trade-marks, trade brands, franchises, and other like property; and

"(5) Sale of real property.-Gains, profits, and income from the sale of real property located in the United States. SU"(6) Sale of personal property.-For gains, profits, and income from the sale of personal property, see subsection (e).

"(b) Net income from sources in United States.-From the items of gross income specified in subsection (a) of this section there shall be deducted the expenses, losses, and other deductions properly apportioned or allocated thereto and a ratable part of any expenses, losses, or other deductions which can not definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in full as net income from sources within the United States.

"(c) Gross income from sources without United States.-The following items of gross income shall be treated as income from sources without the United States:

"(1) Interest other than that derived from sources within the United States as provided in subsection (a)(1) of this section;

"(2) Dividends other than those derived from sources within the United States as provided in subsection (a)(2) of this section;

"(3) Compensation for labor or personal services performed without the United States;

"(4) Rentals or royalties from property located without the United States or from any interest in such property, including rentals or royalties for the use of or for the privilege of using without the United States, patents, copyrights, secret processes and formulas, good will, trade-marks, trade brands, franchises, and other like properties; and

"(5) Gains, profits, and income from the sale of real property located without the United States.

"(d) Net income from sources without United States.-* * *

"(e) Income from sources partly within and partly without United States.-* * * Gains, profits, and income from-

"(1) transportation or other services rendered partly within and partly without the United States, or

"(2) from the sale of personal property produced (in whole or in part) by the taxpayer within and sold without the United States, or produced (in whole or in part) by the taxpayer without and sold within the United States,

shall be treated as derived partly from sources within and partly from sources without the United States. Gains, profits and income derived from the purchase of personal property within and its sale without the United States or from the purchase of personal property without and its sale within the United States, shall be treated as derived entirely from sources within the country in which sold, * * *.

"(f) Definitions-* * *.' (Emphasis added.) 52 Stat. 503-506, 53 Stat. 53-55, 26 U.S.C. § 119, 26 U.S.C.A. § 119.

APPENDIX B.

"The Curtis Publishing Company Independence Square Philadelphia

'Paul R. Reynolds, & Son

our check Forty Thousand Dollars

in payment for

"Important

"This check is offered and accepted with the understanding that The Curtis Publishing Company buys all rights in and of all stories and special articles appearing in its publications and with the further understanding that every number of these publications in which any portion thereof shall appear shall be copyrighted at its expense. After publication in a Curtis periodical is completed it agrees to reassign to the author on demand all rights, except American (including Canadian and South American) serial rights.

"Please note that our reservation of serial rights (which includes publication in one installment) includes new story versions based on motion-picture or dramatic scenarios of short stories and serials that have appeared in Curtis publications, and that we permit the use of such versions only under the following conditions: Such synopsis, scenario, or new story version shall not exceed fifteen hundred (1500) words in length when based on a short story appearing complete in one issue, or five thousand (5000) words when based on a serial appearing in two or more issues, o a series of not less than three connected short stories from which a single picture is to be made. Such synopsis shall appear only in circular matter, press books, press notices, trade journals and in magazines devoted exclusively to dramatic or motion-picture matter, and shall in no event appear as having been written by the author. When selling motion-picture or dramatic rights of matter, you must notify the producer to this effect, so that there may be no misunderstanding on his part and no infringement of our rights.

"The Curtis Publishing Company"

Respondent's exhibit containing the foregoing memorandum agreement also included the statement rendered and the checks issued by the agent to the respondent and to the respondent's wife for $17,100 each, including the following:

"March 3,

"P. G. Wodehouse

in account with

"Received from Saturday Evening Post for All American, Canadian & South American serial rights to No issue is before us relating to the computation of the amount withheld or the division of the payments between the respondent and his wife. In the statements rendered by the agent as to the payments received for serial rights to "Uncle Fred in the Springtime," the initial amount withheld was 10% of the full payment without deduction of the agent's commission.

APPENDIX C.

"Hearst's International

"Mr. Paul R. Reynolds, Sr.

"599 Fifth Avenue

"New York City

"Dear Mr. Reynolds:

"This will confirm our purchase of the article entitled My Year Behind Barbed Wire by P. G. Wodehouse for Two Thousand Dollars ($2,000.00). We are buying all American and Canadian serial rights (which include all American and Canadian magazine, digest, periodical and newspaper publishing rights).

"It is understood and agreed that the author, and you as his agent, will not use or permit the use of this article or any part or parts thereof (1) in any manner or for any purpose until thirty (30) days after magazine publication and (2) in connection with or as the basis for any motion and/or talking picture(s), radio broadcast(s), television, dramatic production(s) or public performance(s) throughout the world unless the words 'Based on (or taken from) literary material originally published in Cosmopolitan' immediately precede or follow or otherwise accompany the title of any and all such motion and/or talking pictures, radio broadcasts, telecasts, dramatic productions or public performances.

"Your signature hereon will constitute an agreement between us.

"Sincerely yours,

"Frances Whiting

"Accepted:

Date: ..........

"I am accepting the above letter on the condition that publication of this article can be released in England simultaneously with publication in Cosmopolitan Magazine (despite the wording of (1) in the second paragraph);

with the further understanding that Cosmopolitan will permit no digest or newspaper publication of this article without the consent of the author or his agent in writing; and with the further condition that we receive payment not later than September 1, 1941." (Emphasis added.)

Mr. Justice FRANKFURTER, with whom Mr. Justice MURPHY and Mr. Justice JACKSON join, dissenting.

Notes

1. The material provisions were identical in the Revenue Act of 1938, enacted May 28, 1938, c. 289, 52 Stat. 447 et seq., and in the Internal Revenue Code, enacted February 10, 1939, 53 Stat. 1 et seq. Amendments to these provisions in 1940 and 1941 changed only the rates of the taxes. For text of the material provisions, see Appendix A, infra, 337 U.S. pages 395-398, 69 S.Ct. pages 1132, 1133, following this opinion.
2. § 119(a)(4), 52 Stat. 504, 53 Stat. 54, 26 U.S.C. § 119(a)(4), 26 U.S.C.A. § 119(a)(4). For full text of the material provisions of § 119, see Appendix A, infra, 337 U.S. page 397, 69 S.Ct. page 1133.
3. See Appendix B, infra, 337 U.S. page 398, 69 S.Ct. page 1134.
4. As the court below held that the respondent's 1938 and 1941 receipts were not subject to taxation, it did not reach the subsidiary issues which had been raised as the proper amount of those taxes if they were sustained. Similarly, the court below did not pass upon the claim that certain of the assessments were subject to the three-year statute of limitations rather than the five-year statute here applied. See § 275(a) and (c), 52 Stat. 539, 53 Stat. 86, 26 U.S.C. § 275(a) and (c), 26 U.S.C.A. § 275(a, c). This claim turned upon the recognition to be given to certain assignments made by the respondent to his wife. Those assignments, if fully recognized, might have reduced the tax to be assessed against the respondent to an amount less than 25% of the amount originally stated by him in his return and thus rendered the five-year statute inapplicable. However, the effect of those assignments was not passed upon by the court below.
5. "Supplement H-Nonresident Alien Individuals
6. "Sec. 143. Withholding of Tax at Source
7. "Sec. 147. Information at Source
8. This opinion was rendered in response to a request to the Treasury for advice as to whether certain payments received during the years 1921 to 1928 by the taxpayer, a nonresident alien author, were taxable as income from sources within the United States. The payments were received pursuant to contracts granting certain volume, serial and motion picture rights in consideration of stipulated royalties payable in various ways. Some contracts prescribed a royalty on each copy sold, others a total stipulated sum, and, in at least one case, this sum was payable in several parts. The opinion reviewed the practice of many years and gave a positive answer to guide future practice. The answer was that all these receipts were taxable insofar as they came from sources within the United States. The opinion contained the following significant statements which indicate the administrative practice which had been applied and thereafter was to apply to these Sections:
9. "The fact that one lump sum was received for the privilege of using the property of the author instead of a series of payments does not alter the real character of what the taxpayer received. It was payment for the use of his literary property for the purpose named and in so far as it was in payment for use in the United States was taxable as a royalty paid in advance and received for the granting of that privilege. While there seems to be no direct authority for this view of the meaning of the statute, we believe it correct in principle and the order of the Board in this respect is reversed." Id., 98 F.2d at page 755. This decision effectively supplements the Treasury Bulletin of 1933 and emphasizes the general language of the statute in taxing proceeds of the type of transaction that is before us. It reversed an intermediate holding made by the Board of Tax Appeals in 1935 in Sabatini v. Commissioner, 32 B.T.A. 705. That intermediate decision, accordingly, was in the process of review when the Revenue Act of 1936 was enacted and, therefore, it cannot be argued that Congress carried its interpretation into the Revenue Act of 1936. If anything, the contrary might be argued as to Sabatini v. Commissioner, 2 Cir., 98 F.2d 753, which was decided before the enactment of the Internal Revenue Code.
10. "Sec. 211. Tax on Nonresident Alien Individuals.
11. "Sec. 143. Withholding of Tax at Source.
12. "Nonresident Aliens and Foreign Corporations
13. On the floor of the House, Representative Hill of Washington, of the Committee on Ways and Means, supporting these Amendments, said:
14. Particularly in the Revenue Act of 1938, § 211, was amended to provide, that, if the aggregate amount of a taxpayer's income of the types included from sources within the United States was more than $21,600, during a taxable year, then the regular rate of tax imposed by §§ 11 and 12 became applicable, subject to the proviso that in no case it be less than 10% of the gross income subject to the tax. § 211(a) and (c), 52 Stat. 527-528, and see Appendix A, infra, 336 U.S. page 395, 69 S.Ct. page 1132.
15. "* * * While payment ordinarily is at a certain rate for each article or certain per cent of the gross sale, that in itself is not determinative. The purpose for which the payment is made and not the manner thereof is the determining factor." Commissioner of Internal Revenue v. Affiliated Enterprises, 10 Cir., 123 F.2d 665, 668.